Cryptocurrency

How Serious Are Sam Bankman-Fried’s Alleged Campaign-Finance Violations?

In late November, Sam Bankman-Fried, the co-founder of the cryptocurrency exchange FTX and the trading firm Alameda Research, gave one of his first interviews since FTX filed for bankruptcy protection. He made some remarkably unguarded comments, indicating that the political implications of his actions might be much broader than previously thought. In recent years, Bankman-Fried had become one of the Democratic Party’s most prominent donors: during the last election cycle alone, he gave a reported forty million dollars to campaigns and political groups that were mostly Democratic. This past spring, he said that he could potentially spend between a hundred million and a billion dollars during the 2024 election cycle. In the November interview, which was with Tiffany Fong, who hosts a cryptocurrency-themed YouTube channel, Bankman-Fried said that, contrary to his reputation as a power broker of progressive causes, he gave about the same amount to Republicans through so-called dark-money contributions. “All my Republican donations were dark,” Bankman-Fried said, in his characteristic vague-yet-boastful style. “And the reason was not for regulatory reasons. It’s ’cause reporters freak the fuck out if you donate to Republicans—they’re all super liberal. And I didn’t want to have that fight. So I made all the Republican ones dark.” (Bankman-Fried also made some donations to Republicans that are public.)

FTX, which was one of the world’s largest crypto exchanges, filed for bankruptcy in early November, after cryptocurrency markets fell dramatically last spring. It soon became clear, according to the prosecutors, that Bankman-Fried had used customer funds to make up for debts at Alameda, his privately held hedge fund. A few weeks later, Bankman-Fried was indicted, in one of the largest financial-fraud cases since Bernie Madoff’s; he was extradited to the United States, from the Bahamas, in late December. (Bankman-Fried has denied that he ever knowingly commingled customer money with Alameda funds.) Prosecutors have alleged that he used customer funds to make campaign donations, that he used FTX corporate funds to make donations, that he violated federal campaign-finance limits, and that he made donations under someone else’s name. The Justice Department didn’t provide any details about those potential violations, other than to say that his donations amounted to “tens of millions of dollars.” (Bankman-Fried has pleaded not guilty on all charges. His attorney, Mark Cohen, said that Bankman-Fried is “reviewing the charges with his legal team and considering all of his legal options.”)

Since Bankman-Fried’s arrest, Republican commentators have argued that the case represents a devastating political scandal for Democrats. Many Democratic groups, including the Senate Majority Political Action Committee, and several politicians—including the former Texas gubernatorial candidate Beto O’Rourke, who received a publicly reported donation of a million dollars from Bankman-Fried—have announced that they’re giving the money back or donating it to charity. “Whenever there’s someone in the news for something bad, there’s pressure on candidates and members of Congress to return donations from that person, or donate those donations somewhere else,” Jordan Libowitz, the communications director of Citizens for Responsibility and Ethics in Washington (CREW), a campaign-finance watchdog group, told me. Individual political donations are capped at around three thousand dollars per election, so the financial cost is especially low for recipients who received relatively small amounts to return the money and avoid having negative news stories that link them to the scandal. “In this case, there’s the question of whether that money was [Bankman-Fried’s] to begin with, or if it was illegally gained,” Libowitz said. “And, in that case, there could potentially be some clawback, as lawsuits try to get some of that money back to the people it belonged to in the first place, which is what makes this case a bit different from your run-of-the-mill.”

There is also another category of political giving, involving dark-money donations. These donations are funnelled through nonprofit organizations that bill themselves as “social welfare” groups and claim that they are not primarily seeking to influence the outcomes of elections. The non-secret part is that many of these groups are, in fact, engaged mainly in political activity intended to sway elections, such as running television or online ads criticizing a candidate. There are no limits on such donations, because they are technically to nonprofits, and their donor lists are generally kept secret. Because of the secrecy, it’s impossible to know whether Bankman-Fried’s comments about giving equal amounts to Republicans are true. If they are, though, they would seem to counter the favored Republican narrative about the case.

By describing his dark-money donations as being “to Republicans,” as Bankman-Fried did, he acknowledged that the money was given directly to fund political activity—and that could mean that his actions were against the law. “Basically, dark money is done with a wink and a nudge: You say, ‘I’m just giving this group money, because I like their social-welfare mission, and they can use it for whatever they want,’ and then they choose it for politics,” Libowitz said. “What he’s saying is that they are using it for politics, and political donations have to be disclosed. We don’t usually see someone just saying it to the press that they were doing it. This was really amateur hour.” In early December, CREW filed a complaint with the Federal Election Commission, which is separate from the federal indictments, alleging that Bankman-Fried admitted he violated campaign-finance laws. (Bankman-Fried’s lawyers declined to comment on this matter.) There have been other cases of individuals trying to illegally conceal their political donations, but what makes the Bankman-Fried case different is that the money allegedly wasn’t his to give.

The Federal Election Commission is expected to investigate the claims in the complaint from CREW, a process that could take several years. This means that answers will probably emerge most quickly from the criminal case against Bankman-Fried. His trial is scheduled to begin this fall. At his arraignment, in January, he wore a dark suit and tie, which created an odd contrast to his wild, curly hair. When the time came, Cohen, Bankman-Fried’s attorney, rose from his seat to address Judge Lewis A. Kaplan: “He pleads not guilty to all counts.”

The hearing offered a glimpse of the months of legal proceedings that are to come. Bankman-Fried was released from jail on a two-hundred-and-fifty-million-dollar bond—one of the largest in recent memory—which was co-signed by his parents, who have pledged their California home as collateral. Two other individuals have also co-signed the bond, and this suggests that Bankman-Fried, for all that he’s alleged to have done, still has wealthy and powerful allies willing to back him. If he fails to appear in court in the future, the co-signers could be responsible for the full amount of the bond. During the hearing, the judge said that he would grant a motion submitted by Bankman-Fried’s lawyers to keep the names of the co-signers secret, because publicizing their names would lead to a flood of media attention. But the judge noted that the names might not be secret forever. “I anticipate the possibility that members of the media or others may wish to contest the sealing of that information,” Judge Kaplan said. “And they should have the opportunity to do that.”

The judge set a tentative court date of October 2nd, and the parties discussed a schedule for producing discovery. Finally, Danielle Sassoon, one of the prosecutors, requested an additional condition, prohibiting Bankman-Fried from “accessing or transferring any assets” from FTX. The request seems to come in response to reports that someone moved digital assets out of Alameda accounts days after Bankman-Fried was released on bond. In a recent tweet, the former C.E.O. said that he was not the person behind any such transactions.

At the hearing, Cohen, looking displeased, reiterated that his client had not transferred these assets. Sassoon replied that the government was still looking into the question, adding that “our investigation has revealed that he has tweeted knowing false statements before,” and that “he did have access to these wallets.” She went on to say that the government had knowledge, from a co-conspirator who was evidently coöperating with the prosecution, that Bankman-Fried had worked with foreign regulators to transfer assets to their jurisdictions. He allegedly told the co-conspirator that he wanted to try to “delay” the U.S. legal proceedings and curry favor with the foreign regulators, who might be more lenient with him. The judge granted the prosecution’s request. Cohen, looking even less happy, said that his client was ordered to make the foreign transfers. The comment was still hanging in the air when the hearing ended. Bankman-Fried left the courtroom with his lawyers, wended his way through a wall of television cameras in the street outside, and climbed into a waiting vehicle, which quickly drove away. ♦

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